Gold Rises to New Record in British Pounds – Close to Near Record Highs in Euros and Most Currencies on Global Debt Contagion Risk

Gold is being supported as default risk has increased after EU finance ministers failed to agree on a new Greek loan package. Gold priced in sterling rose to new record nominal highs this morning at £954.84/oz and the weakness of the euro has seen gold rise to touching distance (9 euros) from new record highs in euro terms at €1,088/oz.

Equities have also fallen and Greek bonds are under selling pressure again – as are Portuguese bonds. The Eurozone debt crisis is creating the real risk of global financial contagion. Interbank and commercial paper markets are increasingly nervous about the ghosts of the Lehman Brothers collapse.

The cost of borrowing euros for three months in the interbank market continued to rise today with the three month Euro Interbank Offered Rate, or Euribor, fixed at 1.510%, up from 1.502%.

Corporate borrowing costs in the U.S. as measured by U.S. swaps rose sharply from 20 to 26.99 last week – the highest so far in 2011.

Gold in Sterling – 30 Days (Tick)

Gold and silver continue to consolidate at these levels after their most recent sell off. Concerns that gold is a bubble remain high – especially amongst those uninformed about the fundamentals of the gold market (see Commentary).

Societe Generale SA raised its third quarter gold forecast by $90 to $1,580 an ounce and silver by $3.50 to $42 an ounce.

SILVER

Silver appears to have found its footing in May and June and looks like it is consolidating between $33/oz and $39/oz.

Further short term weakness may be seen and volatility should be expected but the long term fundamentals remain as sound as ever.

Silver continues to get little or no media coverage despite the recent surge in price. This is an indication of the lack of animal spirits and irrational exuberance from mainstream participants in the silver market.

Silver remains a fringe investment and silver bullion is owned by a small fraction of investors in the U.S. and by an even smaller fraction of investors and savers in Ireland, the UK and EU.

Another good indication that the worst of the selloff in silver is over is seen in the latest Commitment of Traders (COT) data.

The U.S. Commodity Futures Trading Commission data for the week ended June 14, shows that hedge-fund managers and other large speculators decreased their net-long position in New York silver futures again last week.

SILRG Index Silver Large Specs, futures – Net long Positions

Speculative long positions or wagers that prices will rise, outnumbered short positions by 16,587 contracts on the COMEX division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 412 contracts, or 2 percent, from a week earlier. This is the lowest position since the first week of February 2010.

Net long positions are now near the levels seen late August 2007, late 2008 and in 2009 – which were all good silver buying opportunities.

While silver has had a large run up those continuing to focus solely on price and not on value and the actual real world tight supply and demand situation will continue to not understand the silver market and the importance of a diversification into silver in order to protect against sovereign, currency and systemic risk.